WASHINGTON (Legal Newsline) – The U.S.
Department of Justice (DOJ) has announced that United Shore Financial Services (USFS) will pay $48 million to resolve allegations that
it violated the False Claims Act. The agreement was announced on Dec. 28 and was reached after a nearly two-year long investigation.
been accused of underwriting and endorsing loans insured by the Federal Housing
Administration (FHA) that did not meet FHA’s underwriting guidelines. The
actions in question occurred between January 2006 and December 2011 and include
numerous cases of noncompliance with HUD guidelines.
According to the
settlement agreement’s Attachment A, “HUD requirements prohibit paying
underwriters ‘commissions’ based on the volume or value of mortgages approved… At
certain times during the relevant time period, USFS’s underwriter compensation
plan, however, used a formula that expressly tied underwriter compensation, in
part, to the percentage of loans approved by the underwriter and closed by
attachment goes on to state that “USFS also did not ensure that a Direct
Endorsement Underwriters [sic] always personally reviewed appraisal reports
prior to USFS approving and endorsing mortgages for FHA insurance.”
points out that despite internal reports by USFS that recognized significant
deficiencies, senior management was rarely informed and “USFS failed to
self-report materially deficient mortgages and serious violations of FHA
requirements to HUD as it was required to do.”
As a result, HUD insured
hundreds of ineligible mortgages and “subsequently incurred substantial losses
when it paid insurance claims on these released mortgages.”
to Patricia Stamler, an FCA attorney with Michigan law firm Hertz Schram,
Attachment A can be useful to others in USFS’s position.
familiarize themselves with the content of Attachment A, as it provides key
directives on compliance matters tied to FHA funding. Quality control and
reporting are fundamental to ensuring compliance,” she told Legal Newsline.
agreement with USFS is one in a series of similar settlements by the DOJ, and is
for a smaller sum than some others.
“While $48 million seems like a substantial
amount, it is far less than the $1.3 billion Countrywide was ordered to pay,”
Matt Lawhon, an attorney with Oberheiden Law Group, told Legal Newsline. “This
case announces to the industry that DOJ’s civil division is serious about
enforcement activities within the mortgage industry and that those in the
industry need to understand the laws and statutes that regulate their field or
seek legal help to understand those rules.”
settlement “was likely negotiated,” said Lawhon, “and took into account what
the government believed it could obtain at trial and what USFS… felt it could
afford to pay and continue to operate as a company.”
Stamler, Lawhon feels that the major lesson from this settlement is the
importance of compliance with federal guidelines and a quality-control program.
“Based on the information contained in the DOJ announcement, it appears that
the government felt USFS completely lacked a compliance component or failed to
follow existing program requirements,” said Lawhon. “When a company commits to
a culture of compliance, these types of problems can be addressed and exposure
to civil or criminal liability can be diminished, if not removed completely.”